The Hidden Health Costs of the Global Financial Crisis

Yves here. Note that the author has focused on one under-investigated health indicator. Higher suicide rates have garnered some attention. There are no doubt others, like increases in depression and substance abuse, that have not been studied much if at all.

By Arna Vardardottir, Assistant Professor of Finance, Copenhagen Business School. Originally published at VoxEU

One of the many impacts of the Global Crisis was on stress levels, and these can be a risk factor for adverse birth outcomes. This column shows that exposure to the Crisis resulted in a significant reduction in the birth weight of babies in Iceland, comparable in size to the effect of smoking during pregnancy. The full costs of poor health at birth as a result of the Crisis will not materialise until the children exposed in utero become adults.

The economic costs of financial crises are large. Much effort has been put into quantifying the direct economic costs due to unemployment, production contraction, and wealth destruction associated with the 2008 Global Crisis. The estimates show that the Crisis and its aftermath have been distinctive; in the US, where it was responsible for the destruction of around 44% of the median household wealth (Wolff 2014), it was the worst downturn since the 1930s, and the suggested cumulative loss in world output associated with the Crisis lies in the range of $5 to $15 trillion dollars (Adelson 2013). The Crisis might, however, have had other more subtle but still direct costs. Because financial difficulties may raise stress levels among the people they affect, and stress is a risk factor for adverse birth outcomes, children who were in utero during the downturn might be at risk of being born with poorer health endowments. Despite the pervasiveness of financial stress in advanced economies, we have very limited understanding of the effect on health at birth. My research attempts to fill this void.

Watch Arna Vardardottir discuss the effects of financial stress on pregnancy in the video below

Exposure to the Crisis and Health at Birth: New Evidence

In a recent paper (Vardardottir 2016), I use administrative data from Iceland to study how in utero exposure to the 2008 Global Crisis affected health at birth. I find that first-trimester exposure to the Crisis led to a sizable and significant reduction in birth weight, increased the probability of a low birth weight (<2,500 grams), and decreased the probability of a high birth weight (>4,000 grams). I also find evidence that the economic collapse lead to declines in male births and thereby reduced the sex ratio, which is consistent with maternal prenatal stress exposure inducing a selective mortality of the least fit foetuses through increased miscarriages, where weak male foetuses are significantly more affected than female foetuses.

Health at Birth Lingers into Adulthood

Does health at birth matter? In recent years, scientists have been developing a new understanding of our earliest experiences and the ways in which various conditions present during pregnancy contribute to negative health outcomes early in life and exert lasting effects on us well into adulthood. Empirical evidence shows that conditions encountered before birth influence birth outcomes and linger into adulthood; initial health endowments matter for long-term health, human capital, labour market outcomes, and various other measures of life success. For instance, marital status has been found to be negatively affected by early childhood exposure to the 1959-61 famine in China, welfare dependency and the probability of living in a low-income neighbourhood are increased by in utero shocks, and economic conditions at birth matter for mortality later in life (see, for example, Almond and Currie 2011 for a survey of the literature). This evidence suggest that if the Global Crisis caused poor birth health, its full costs will not materialise until the children exposed in utero become adults, and the costs of the Crisis will continue to be paid for decades.

The Collapse of the Icelandic Economy

The Icelandic economy fell apart during the Global Crisis. The collapse was the most severe, relative to the size of the economy, that any country has suffered. Iceland’s three biggest banks, which accounted for about 85% of its financial system, failed in the same week. These events had immediate and catastrophic effects on the economy that came as a shock to the majority of the population.

The reasons for the bank failures were difficulties of the sort experienced by many financial institutions worldwide. The crucial differences here were the scale of the collapse and how sudden and unexpected it was. While many countries had their share of troubled banks, their problems were largely confined to just a segment of the whole banking system, and the overall assets of those banks were much smaller relative to local GDPs. Other governments thus had adequate resources to contain the fallout from individual bank failures. That was not the case in Iceland. Iceland appealed to the IMF for an emergency loan, the first western country in 30 years to do so.

The clear break in the economic trajectory, evident in Figure 1, made it feasible to capture the effect of the Crisis on children exposed in utero because it eliminates the problems posed by the diffuse timing and endogenous sorting normally associated with economic hardships.

Figure 1. Total assets of the three largest banks versus GDP and seasonally adjusted quarterly volume growth in GDP


Estimating the Effect of the Crisis on Birth Outcomes

Capturing the causal effect of the Crisis on health at birth is a non-trivial task. Individuals that have children during crisis times are different from those having children during normal times; the slide into recession is typically slow, allowing individuals to select into pregnancy based on economic conditions. Estimation of the effect of financial crises by comparing those children born during crisis times to those who have children during normal times is therefore confounded by selection into pregnancy during recessions.

In my research, I use two methods to overcome the selection problem and estimate the effect of the Global Crisis:

  • I exploit the discontinuous onset of the Crisis in Iceland. Because the collapse was so sudden and unexpected, the effect the Crisis had on birth outcomes can be captured by comparing the birth outcomes of children in utero during the collapse with those of children in utero at the same time in the previous year (2007). The two groups will on average have similar characteristics except for being in utero during the collapse.
  • I use a mother-fixed-effects approach, comparing two children born to the same mother, where the collapse took place during her last pregnancy. This approach allows me to control for any invariant unobserved mother characteristics that might be related to the probability of expecting a child during the collapse.

Effects on Birth Outcomes

The findings from the study of the effect of the Crisis in Iceland on birth outcomes suggest that financial stress, a common stressor in advanced economies, has an impact on birth weight among first-trimester exposed children.

  • The collapse in Iceland led to a negative and significant effect of first-trimester exposure on birth weight, amounting to 66g.
  • Children whose mothers were in their first trimester of pregnancy during the collapse are 1.9 percentage points more likely to have a low birth weight and 4.0 percentage points less likely to have a high birth weight.
  • Furthermore, the sex ratio at birth among first-trimester exposed children declined by 3.3 percentage points.

This is consistent with the selection in utero hypothesis, predicting that population stressors induce selection against males in utero, and thereby reduce the sex ratio at birth. Figure 2 shows the changes in these birth outcomes around the time of the collapse. Each dot in the panels corresponds to the average outcome for children by birth month.

Figure 2. Birth outcomes around the time of the collapse



A comparison of these findings with those of previous studies reveals that financial stress, a commonplace stressor in advanced economies, has an impact on birth weight comparable to one of the most widely cited behavioural taboo during pregnancy, smoking (e.g. Tominey 2007). Furthermore, compared to the effects of rare, extreme events, the average loss of birth weight due to the 2008 Crisis is quite large; it is more than eight times as great as the 8.7g reduction caused by landmine explosions in Colombia (Camacho 2008) and bigger than the reduction caused by earthquakes in Chile (Torche 2011). The effects are also large compared to the estimated effects of other near-universal stressors like bereavement, which has been found to reduce birth weight by 23g (Black et al. 2016).

Concluding Remarks

The study of the Icelandic collapse contributes to our understanding of the impact of economic stress on child health and the findings are of high relevance in other advanced countries where financial stress is among the most common stressors. The most striking fact about the results is that financial stress in an advanced country, one where the social safety net of welfare systems and policy interventions secures access to health care and all basic needs for the population, can still have a very large impact on birth outcomes. Financial stress is prevalent in households worldwide, and this study provides evidence that it can affect more than peoples’ wallets: It can also have a detrimental effect on their children’s health at birth, which has been shown to be important for later success in life.

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  1. ToivoS

    Yves wrote: There are no doubt others[causes of death], like increases in depression and substance abuse, that have not been studied much if at all.

    Well there was the paper that appeared in Proc Natl Acad Sciences this last fall that reported on increased mortality of white men in the US between the ages of 40 and 60. The increase was attributed to suicide, alcoholism and drug abuse. This is mirroring what happened in Russia between 1990 and 2005. Economic distress is the most likely explanation.

  2. PlutoniumKun

    Interesting and disturbing research.

    I think its true to say that previously studies of the health impacts of being poor focused on lifestyle and diet and so on, but I think there is increasing evidence that it is actually stress which is the big issue for so many people. As anyone who’s ever been in financial trouble knows, the constant background worry is very debilitating – unlike ‘normal’ work/family stress, it is always there, bubbling away in the subconscious, so its hardly surprising it can have health impacts. I’ve often wondered if this is the background to the deep levels of anger which can raise its head so dramatically in many different societies. This is something which writers and film makers have long used as a subtext to their work (especially, for some reason, many Asian artists in my experience), but seems to have only become a significant area of research quite recently.

    1. Norb

      Inducing stress and fear in the population seems to be the goal of the ruling elite. We live in a mediocracy. My feeling is this is the default position of mediocre leaders because this form is easier to carry out and maintain, at least in the short run. A competent leadership class dedicated to building a strong society would be supporting the citizenry not exploiting them. I am often reminded of FDR’s first inaugural address where he rallied the demoralized citizenry with his, “The only thing we have to fear is fear itself” speech. To this day, still rousing and a positive call for action.

      Real health and security in a society comes form the alleviation of human suffering. When this is no longer the driving goal, your society is on the way down.

      Simple acts of kindness and compassion will be one way to alleviate the suffering brought about by our corporate leadership. What is now painfully evident to almost everyone is the actual incompetence of our leadership class. Their competence lies in lining their own pockets.

      The real work lies in turning the fear and anxiety people feel into a positive force at building instead of a destructive force of decay. The search for equality, harmony, and balance. Or inequality and chaos.

      1. abynormal

        here hear Norb:
        Simple acts of kindness and compassion will be one way to alleviate the suffering

        “If you don’t get what you want, you suffer; if you get what you don’t want, you suffer; even when you get exactly what you want, you still suffer because you can’t hold on to it forever.” …now is the moment to start! mindful of others needs lightens our personal loads and ultimately redirects our future generations.

        “. . . Action always happens in the present, because it is an expression of the body, which can only exist in the here and now. But the mind is like a phantom that lives only in the past or future. It’s only power over you is to draw your attention our of the present.”~Dan Millman, Way of the Peaceful Warrior
        “Where are you? Here
        What time is it? Now
        What are you? This moment.”

  3. J

    I was unemployed for close to 2.5 years and [T.M.I. WARNING] I had an anal fissure that took close to 6 months to heal. To this day, I still panic at seeing just the smallest amount of blood.

  4. abynormal

    Closer to Home: “A 2009 study on the impact of the 1980s oil crisis and subsequent recession in Pennsylvania, published by economists Daniel Sullivan and Till von Wachter in the Quarterly Journal of Economics, found that in the year after men lost their jobs in mass layoffs, their chances of dying doubled. And though the heightened risk tapered off over the years, it was still significantly higher 20 years later. If such trends were sustained indefinitely, the authors wrote, it would mean a loss in life expectancy of 1–1.5 years for a worker displaced at age 40.

    Today, a new generation of researchers is building on this scientific foundation. Sociologist Clemens Noelke, David E. Bell Postdoctoral Fellow at the Harvard Center for Population and Development Studies (Pop Center), is in the final stretch of a study of the health impact of job loss during recessions and the extent to which unemployment benefits may cushion potential harms. Noelke’s research, which draws on data from a massive biannual study, focuses on U.S. workers ages 50 and older between 1992 and 2010—years that include the downturns of the early 1990s and the early 2000s, as well as the Great Recession (2007–2009). Among the health indicators he is looking at: mortality rates, cardiovascular disease, cognition, depression, and unhealthy behaviors such as smoking and drinking.
    Why target an older population? “It’s harder for an older person to find a new job, and older individuals have more health conditions to begin with,” Noelke explains. “They’re also becoming a larger proportion of the workforce.” By 2016, one-third of the U.S. workforce will be age 50 and up.

    While Noelke is not yet talking publicly in detail about his findings (currently under peer review), he expects the results to be in line with existing studies from European countries and the U.S. The studies have consistently tied unemployment to elevated death rates. A 2011 meta-analysis of international research—published in Social Science & Medicine by David Roelfs, Eran Shor, Karina Davidson, and Joseph Schwartz—found that the risk of death was 63 percent higher during the study periods among those who experienced unemployment than among those who did not, after adjusting for age and other variables.

  5. Northeaster

    “Higher suicide rates have garnered some attention.” –

    This should be emphasized with Veterans coming home to no jobs, where the rate of suicide and suicide attempts is 22 per day. Granted, most infantry/combat jobs do not translate to anything useful in today’s economy, but it does show how things have changed in the twenty-five (25) years since I was over there. Once upon a time, there was plenty of unskilled decent paying jobs to come home too, those days are over for too many reason to list here. So now we have Veteran’s coming home and there only option for employment for most is to go back over there for a private outfit (better paying, tax free).

    Going from the worst combat environment imaginable at a young age to a sedentary state with no options, it should be no surprise why so many turn to substance abuse or suicide. To compound the problem, my state (Massachusetts), does not require nor follow the federal mandate of providing a Social Security Number in order to be eligible for social welfare benefits. As a Veteran, I must provide my DD-214 and a Social Security Number. What we’re seeing is a high migration of immigrants, legal or otherwise, stripping resources away from Veterans. Political ideology of course trumps all, so what if some combat vets kill themselves in the name of pushing a political ideology.

    These young men and women don’t have to worry about stresses and birth of children because they kill themselves way to early to worry about such and my political body could care less.

  6. ke

    The majority always oscillates, creating a counterweight, gravity. Being concerned about others is a good thing, but you don’t hop on the counterweight to go anywhere.

    If you eliminate time as a variable, you will see that modern medicine is less effective than folklore or naturopathic, temporarily lowering infectious disease at the cost of growing degenerative disease and virulence of infectious breakout.

    There is an inverse relationship between public education and living standards because pe is a completely artificial wall, with doors for RE bigotry.

    The last thing you want to do is distribute more of that crap. The law has nothing to do with liberty, and everything to do with feudalism, printing debt to maintain RE control.

    America is just the latest home of the reserve currency, kicking the can of ignorance down the road for centuries, to create artificial scarcity, and the majority willingly participates every time, assuming empire time, mortgaging their own children, demanding that you do the same.

  7. washunate

    Great read. Stress specifically and public health more generally is one of the major areas which the perspective focusing on quantity of money undervalues, both orthodox and heterodox.

    In the American context, since work is one of the major sources of stress, we would be significantly better off as a society if we collectively worked less (not more).

  8. ke

    If modern medicine is so fantastic, why must we confiscate children, parents, property and income for failure to comply, even when it’s free, and what does that say about the US Constitution.

  9. equote

    “Inducing stress and fear in the population seems to be the goal of the ruling elite.”
    Of course, it is a ‘cost saving’ policy. If the working class can be made to die earlier health care and pension costs are less, especially if health care is distributed on an ‘ability’ to pay basis.

  10. Steve H.

    The hard ecological numbers of births, deaths, infant mortality, sex ratios, are robust because they are so hard to manipulate. However, they are not so relevant for the living, both now and for the future. Untangling complex relationships is critical to making future decisions. The difficulty of distinguishing correlations that are random, from dependent on a mutual factor, from causal, from those that positively feedback by being mutually catalytic, is high. They allow for confirmation bias by committed scientists, and deception by interested parties.

    If someone wants to quit smoking for health reasons, should they also quit drinking, which is a cofactor for health effects? Should they not go to smoky bars? If they don’t, have they isolated themselves socially, which has its own stressors? Do I have a chance if Mom smoked and drank like a fish?

    This appears to be good work, on a first pass. It is important because it helps red-flag future consequences to be aware of. We can get reasonably accurate numbers on how much ‘toxicological mortality’ there is, but working to decrease the death rate is only looking at the acute effect. We can be pretty sure that the chronic aspects affect many more people, and this sort of research allows foresight to deal with problems such as low birth weight. This work shows that economic effects can have toxic consequences.

  11. Gaylord

    Externalities — so many are unaccounted for and humans’ failed economies have ignored them at our peril. As the stability of the biosphere breaks down, more illness and death will follow and this will proceed exponentially.

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